Vodafone’s Indian telecom unit merges with local company Idea Cellular,create India’s largest telecom firm.

The boards of Idea Cellular Ltd and Vodafone India Ltd have approved their merger, excluding the latter’s 42% stake in Indus Towers Ltd, heralding the creation of India’s largest telecom company in a $23 billion deal.

The merger is aimed at dominating a market which billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd has disrupted with free voice calls and low data prices. Jio, in which Ambani has invested $20 billion, launched its services in September.

Kumar Mangalam Birla (left), chairman of Aditya Birla Group of which Idea Cellular is a part, and Vodafone’s Vittorio Colao .Courtesy:AP

The combined entity will have roughly Rs 80,000 crore of annual revenues and 400 million customers. This works out to a 41 percent market share by revenues, and 35 percent market share by subscribers.

Vodafone will hold 45 percent in the combined entity, Idea promoters 26 percent, and the rest by the public. Vodafone’s 45 percent stake is after selling a 4.9 percent stake to the Idea promoters for Rs 3,900 crore, allowing the Birla Group to up its stake to 26 percent.

The merger will create the world’s second largest and India’s largest telco, overtaking Bharti Airtel Ltd. It will have almost 400 million customers with 35% customer and 41% revenue market share. It will have revenue of Rs81,600 crore and an operating profit of Rs24,400 crore. Together, Idea Cellular and Vodafone India have debt of Rs1.08 trillion. The merger is expected to be completed in 2018.

Kumar Mangalam Birla will be the chairman of the combined entity, with the Aditya Birla Group having the sole right to appoint the Chairman as one of its three directors. Vodafone will have the sole right to appoint the Chief Financial Officer. Both Vodafone and the Aditya Birla Group will jointly appoint the CEO and Chief Operating Officer, the release said.

From a consumer standpoint, the merger could signal the beginning of the end of cheap tariffs as fewer players will be left in the fray over the next few years.

At a press conference to discuss the details of the merger, Aditya Birla Group Chairman Kumar Birla tried to downplay fears of job lay offs following the merger.“For a company with such size there will be enough growth opportunities; I don’t expect a significant downside,” he said in response to a question.

“For a company with such size there will be enough growth opportunities; I don’t expect a significant downside,” he said in response to a question.

Vodafone Group CEO Vittorio Colao said both brands would exist after the merger. “Both brands will continue to exist and we will leverage on both brands,” he said.

Talks of consolidation in the sector have been doing the rounds following a poor response to the spectrum sale last year which earned the government only a fraction of Rs 5.63 lakh crore it had envisaged. New entrant Reliance Jio’s aggressive push to gain market share is also seen as a major trigger for consolidation in the sector.